Monetary policies that affect automotive industry Essay

Monetary policies that affect automotive industry

 

These are set of tools or instruments by which the authorities and economic practitioners attempt to regulate aggregate expenditure in the economy by influencing liquidity and the terms and availability of credit in the country.

Open market operations which involves the sale and purchase of government securities to finance the excess of public expenditure over public revenue.

Discount rate tries to regulate the amount of money in circulation. When discount rate is higher, it discourages borrowing and when it’s low it makes automotive industry to borrow more.

Lending ceiling limits the amount of money that can be borrowed and can not go beyond the limit. Interest rate ceiling, central bank instructs commercial banks not to charge interest rate beyond stipulated rate when lending out money.

Moral suasion, central bank tries to persuade commercial bank not to lend beyond a certain limit usually in percentage. (Agell, Calmfors, 1996)

 

FISCAL POLICIES THAT AFFECT AUTOMOTIVE INDUSTRY

This is government policy in respect to spending and taxation.

When the government uses its powers to influence total appending either directly by changing its purchase of goods and services or directly by altering the disposable income of persons through changes in levels of taxation or through transfer of outlays, then we have fiscal policy.

 

 

HOW THESE FACTORS HAVE AFFECTED EMPLOYMENT RATES

It helps to achieve high or full employment where by there are a substantial number of natives and immigrants without proper or satisfactory jobs and this affects value of local currency. It maintains full employment level.

 

HOW THEY HAVE AFFECTED GROWTH OF INDUSTRY

It makes sure that automotive industry is in continuous progress on yearly basis. This makes the investment sector to be conducive.

 

HOW THESE POLICIES HAVE AFFECTED THE PRICES OF PRODUCTS

These policies strive to contain prices at stable levels that do not attract inflationary situations. The cost of production is kept lower that the selling price of the output to lower the chances of the industry making loss. (Turnovsky, 1996)

 

REFERENCES

Agell J; Calmfors L; Johnson (1996); Fiscal policy at a time when Monetary policy is tangled to the mast; The European Economic Review, Volume 40, pp1413-1440, Elsevier.
The Central Bank has a vital role of regulating the activities of other banks in the economy by regulating interest rates and putting up borrowing ceilings.

 

Turnovsky J(1996); Fiscal Policy, growth and Macro-economic performance  in an open and small economy; International Economics, volume 40 number 1, Feb 1996, pp 41-66(26), Elsevier
Fiscal and monetary policies continue to affect businesses especially small businesses like the automotive industry. High taxes lead to an increase of prices of raw materials that compels them to charge higher for their services. There is thus competition among the firms in the same industry who try to lower their service rates at the expense of profits.